What's an Offshore Company in a Dubai Free Trade Zone?
Setting up offshore companies in Dubai is one of the primary services we offer at Europe Emirates Group. There are a plethora of corporate structures you can choose from when you begin the process, but there are different options for where your entity resides within Dubai. One of the most popular is to have your offshore company in a Dubai Free Zone. What is an offshore company in a Dubai Free Zone compared to other Dubai offshore companies? Here's everything you need to know.
What is an offshore company in Dubai?
As we detailed in our previous article, an offshore company is one registered in a country that is different from the place where it carries out most of its operations. Many corporations will decide to go offshore for tax reasons. In the case of Dubai and the rest of the United Arab Emirates, offshores are a popular way for businesses to secure a presence in the country. In many places where you can set up offshore companies, including Dubai, if you are offshore, that means you cannot operate on the mainland.
There are many perks to establishing an offshore company. They include no foreign currency controls and a stable exchange rate where the local dirham's value is fixed to the US dollar, ensuring firm monetary policy. Other benefits include that it's easy to set up companies and foreigners can entirely own the entities. Offshore companies also have the right to act as holding companies.
How to start a business in Dubai Free Zone
After deciding the corporate structure you want, the next thing to determine when carrying out your offshore company registration in Dubai is figuring out which Free Zone is right for you. There are more than 40 Free Zones throughout the seven Emirates in the United Arab Emirates, and most of the Free Zones are separated by industry. How would this work in practice?
Let's say you're an online newspaper looking to set up an offshore company in a Dubai Free Zone. Should that be the case, we would recommend you carry out your company registration process in the Media City Free Zone. What makes this the Free Zone for you? It's home to media outlets such as The Financial Times, The Economist Group, and the UAE Edition of The Times, and is a hub for creative industries. Therefore, it makes the most sense to set up your business in the Free Zone most attuned to your individual industry's intricacies.
Along with the industry specificity, the Free Zones serve as foreign direct investment (FDI) hubs and have allowed the Emirati economy to diversify beyond the traditional hydrocarbon industry. Dubai and the rest of the UAE's privileged location for international trade due to its extensive network and robust re-exporting activities makes it a magnet for those involved in imports and exports. There are no trade quotas as well and a customs rate set at four per cent. Finally, you can repatriate all your profits and capital to your home country.
What else makes this setup advantageous? They're ideal for those firms looking to enter the United Arab Emirates market. An independent authority runs each Free Zone and is responsible for issuing the operating trade licences for Free Zone Establishments, known by their abbreviation of FZES. The authorities in the Free Zones also help businesses throughout the process of establishing a company in the United Arab Emirates. Free Zones also offer the option of setting up a representative office or branch office of a parent company based in the UAE or abroad. Every Free Zone has different types of licences and its own sets of restrictions on business activities.
The Disadvantages of Free Zone Companies in Dubai
Despite the benefits, the operating costs in Free Zones can be much higher than onshore. Another difference consists of the initial share capital requirements, which vary by the free zone but are always higher than for local entities. One of the other disadvantages has to do with real estate costs, while it is true that Free Zones do let you set up virtual offices.
Next, and one that you will need to consider very carefully, is which Free Zone you choose. Why? If you want to trade with companies in other Free Zones, it can be more complicated than trading internationally, which are tax-free and widely promoted. Under the current legislation, service providers in free zones are prohibited from trading locally, and thus, you'll need to hire either an onshore distributor or commercial agent to help you do business.
Plus, if you want to switch free zones, nearly 99% of jurisdictions in the United Arab Emirates prohibit business license transfers. If you're going to move from one Free Zone to another, you would need to shut down your firm in the old zone and start in the new one. You would necessarily have to liquidate your old company and start from scratch in a new Free Zone.
Finally, if you want to do business locally, the rules are different. Emirati legislation dictates that foreign ownership of companies operating locally is capped at 49 per cent while the other 51 per cent must be held by a national of the United Arab Emirates.
How to start a business in Dubai Free Zone
Are you looking to find out how to open an offshore company in Dubai and choose which of the Emirate's Free Zones is best for your company? Our Free Trade Zone experts will walk you through the crucial questions of opening up an offshore company in one of Dubai's Free Zones. We will go through the benefits and drawbacks of the available Free Zones based on your industry and business needs with you. We will make sure your choice of a Free Zone is the right one from the very beginning. If you're ready to start the process of selecting the correct Dubai Free Zone, contact our Free Trade Zone specialists and set up a consultation.
Senior Associate, Europe Emirates Group